Chapter 4, Problem 3TCL

CONDUCTING A FINANCIAL RATIO ANALYSIS ON HP INC.

Use online resources to work on this chapter’s questions. Please note that website information changes over time, and these changes may limit your ability to answer some of these questions.

In Chapter 3, we looked at Dunkin’ Brands’ financial statements. In this chapter, we will use a financial Internet website, www.morningstar.com, to analyze HP Inc., a computer hardware company. Once on the website, you simply enter HP Inc.’s ticker symbol (HPQ) to obtain the financial information needed. We will also perform a trend analysis, where we evaluate changes in key ratios over time.

Through the Morningstar website, you can find the firm’s financials (Income Statement, Balance Sheet, and Cash Flow) on an annual or quarterly basis for the five most recent time periods. In addition, the site contains Key Ratios (Profitability, Growth, Cash Flow, Financial Health, and Efficiency) for 10 years. We will use the Key Ratios on this site to conduct the firm’s trend analysis. (At the bottom of the screen you will see that you can click “Glossary” to find definitions for the different ratios. For example, Morningstar’s Financial Leverage ratio is the same as the Equity multiplier that we use in the textbook.)

Looking at Morningstar’s Profitability ratios, what has happened to HP’s profit margin (net margin %) over the past 10 years? What has happened to its return on assets (ROA) and return on equity (ROE) over the past 10 years?